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June 29, 2021

How much do real estate agents make? And who pays?

Erik J. MartinThe Mortgage Reports Contributor

June 29, 2021 - 8 min read

How much do Realtors and real estate agents make?

Real estate agents make a commission on each home they successfully sell. That commission is generally around 5-6% of the sales price.

But one agent won’t necessarily pocket the entire 5-6%.

Real estate agent commissions are often split 50/50 between the seller’s agent (or “listing agent”) and the buyer’s agent.

However — whether they’re representing the home seller or the home buyer — both types of real estate agents are paid by the seller when the sale is complete.

Since commissions can be high, it makes sense to shop around for your real estate agent.

Look for the best price and the best service, just as you would when choosing your mortgage lender.

Real estate agent salaries

Real estate agent salaries aren’t based on a yearly or hourly wage. Instead, most agents make money only after a home has sold.

This income is in the form of a commission, which equates to a percentage of the home’s selling price. So a real estate agent’s salary depends on the sales price of homes where they work.

The National Association of Realtors and Redfin both estimate the average commission charged by agents at 5-6%.

That’s a lot. Zillow reports the median sale price of a U.S. home was just over $287,000 in May of 2021.

A 6% commission on a home selling at $287,000 would equal $17,220. Even after a 50/50 commission split, an agent could earn $8,610 on the home sale.

And, at the high end of the market, the figures must bring tears even to rich people’s eyes. A homeowner who sold a mansion in Manhattan or Beverly Hills worth $50 million would be writing (through those tears) $2.5 million or $3 million commission checks.

But before you decide to launch your new career as an agent, remember that not every real estate professional works in New York or California, and not every real estate transaction includes seven figures.

Who pays the real estate agent commission?

Here’s some good news for home buyers: The seller typically pays the real estate agent commissions.

If you’re selling, the news isn’t so great.

Smart buyers will often have their own “buyer’s agent.” This can be great because it gives you a skilled professional (if you choose yours carefully) who is 100% on your side and who comes with skills, expertise and knowledge.

Usually, sellers pay for their own agent and the buyer’s agent, too.

Of course, you could argue that the seller pays commissions using money from the buyer. So the question of “who pays the total commission” is open to interpretation.

No matter how you look at it, buyers won’t pay extra to hire their own agent. If you don’t have a buyer’s agent, the seller’s agent will keep the entire commission without offering you any representation.

Also note that the average real estate agent charges “commissions” rather than “fees.” That means they get paid for success rather than by the hour or for services rendered.

So, if a deal doesn’t go through, they’re unlikely to make any money at all on it. This sometimes results in an agent getting lucky and making a pile of money on a quick and easy transaction. But, at least as often, it sees him or her getting no reward for a lot of effort.

How the real estate agent commission is set

Realtor Kevin Deselms says the commission percentage is based on several factors. This can include local real estate market conditions.

“But the amount is often based on negotiation between the seller and the listing agent or the agent’s brokerage,” he says.

In other words, the commission is negotiable. And some agents are willing to give discounts, either within the listing agreement or later.

In fact, about three out of five sellers get a discount on their agent’s commission.

“Commission rates have been trending down in recent years,” says real estate broker Matt Buttner.

“This is mostly because of the internet and technology,” he says. “The MLS now automatically syndicates the listing out to real estate websites like Zillow and Realtor.com. So a listing agent’s job is easier.”

Discounts are given for many reasons.

“Say, for example, a client is selling one house and buying another using the same agent. In this case, the agent is more likely to offer a discount,” says real estate attorney and Realtor Bruce Ailion.

“Or say the property is in a hot market and competitively priced,” Ailion says. “It might take less work to sell. That could lead to a discount.”

Dual agencies (when the buyer and seller use the same real estate agent)

Sometimes, the buyer’s agent and the seller’s agent are the same person. In theory, he or she represents the interests of both sides equally.

This is called a ‘dual agency.’ And a seller may be able to negotiate a reduced commission rate when one of these arises.

However, dual agencies can throw up some obvious conflicts of interest. Some agents find it hard to represent both parties fairly, especially during the deal’s negotiations and if a dispute arises.

That’s why there’s a legal duty for agents in these situations to be totally transparent with both parties over their roles and actions. And it’s why dual agencies are flat-out illegal in Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont.

What do real estate agents and Realtors do?

Whether acting on behalf of sellers or buyers, the duty of a real estate professional is to maximize the benefits his or her client gets from the home transaction.

Agents do this by having:

An intimate knowledge of the local housing market, including expertise in appraisal
Negotiating skills to secure the best or optimum price for the client
Local contacts in the marketplace who can help with the rapid acquisition or sale of a home
A close knowledge of the legal and mortgage processes involved
Troubleshooting skills that keep a transaction on track when issues arise
Interpersonal skills that allow clients to feel comfortable and in control throughout the process

If you pick a good one, your agent can be highly valuable.

Ideally, your agent will have several years of experience in your local real estate market. But new agents can offer a lot of skills and insights, too.

Types of real estate agents

You may hear the terms ‘real estate agent,’ ‘Realtor,’ or ‘brroker’ used interchangeably. But there are some key differences between these professionals.

Real estate agent vs. Realtor

All Realtors are real estate agents or brokers. But not all real estate agents or brokers are Realtors.

Realtors are members of the National Association of Realtors (NAR). And the Realtor trademark is intended to stop agents who aren’t Realtors from claiming they are.

The NAR would say, with some justification, that its members have greater expertise (they have to pass additional exams) and are held to higher professional standards than other real estate agents.

Real estate agent vs. broker

A real estate agent is someone who has passed his or her state’s relevant exams and who’s been licensed to practice as an agent.

A real estate license is the lowest level of qualification for people to facilitate the buying and selling of homes.

Each state sets its own exam standards and continuing education requirements. It’s easier to get a licence in some states than others.

A real estate broker has gone the extra mile and taken additional exams. So he or she should — theoretically — have greater knowledge and expertise than an agent.

And a broker is more likely to have a senior post in a real estate brokerage, often managing other agents’ activities.

The Bureau of Labor Statistics reports the national median income of a real estate agent was $51,220 in 2020.

By contrast, the BLS also found real estate brokers tend to make about $10,000 a year more than sales agents.

Why a real estate agent is worth the commission

Having a real estate agent on your side as a buyer can make home shopping less stressful — and you may find better properties, or get a better deal, than you would have on your own.

For sellers, it’s a better way to list your home and bring in more prospective buyers.

And for both sellers and buyers, it helps to have a professional on your side who can help navigate the complexities of such a big real estate transaction.

Also, “buyer’s agents work much harder for their money,” says Buttner. “They often work with a particular buyer for months. They show them multiple houses and make many offers before something sticks.”

For this reason, the buyer’s agent sometimes makes a bit more than the seller’s agent.

“A lot of brokerages that charge less than 6% will still offer the buyer’s agent a full 3%,” Buttner says.

Remember that an agent’s hard work is not rewarded with every client. Those national average salary statistics collected by the BLS and other sources don’t show this unpaid effort.

“Not all transactions result in them getting a commission,” says Ailion. “So the costs associated with transactions that don’t close must be factored into those that do.”

Ailion understands that 6% may seem high. But, he adds, you really get what you pay for.

“Like a good doctor or lawyer, I believe a good agent is worth their fee,” Ailion says. “You’re dealing with likely the most significant asset in your life. So choosing the best representation makes sense.”

Alternatives to using a real estate agent or Realtor

Many sellers think real estate agents’ commissions as too high and try to avoid them.

There are three main ways of selling a home without such high costs:

For sale by owner — At its most basic, this might involve putting up a yard sign, printing and distributing some flyers, and telling everyone you know your home’s for sale. It’s cheap and sometimes works, especially in hot real estate markets. But the risk of undervaluing or overvaluing your home is high
Flat-fee MLS listing by owner — The MLS is the Multiple Listing Service. It’s the online resource that real estate agents use to let other agents and buyers know that a home is available. Owners can add their listings (which may appear on Realtor.com and Zillow, too) by paying a flat fee — or a smaller flat fee with a success charge on sale
Trimmed-down services — Some agents offer lower commissions for a more basic service. You might get a menu — from MLS alone through increasingly complete levels of service — from which you choose what you want and how much you’re willing to pay

Are these better ways to sell? That will depend on many factors, including:

How strong your local property market is
How good you are at appraising your own home’s value
How much effort you’re prepared to put into finding a buyer
How confident you are in your ability to shepherd your sale through to closing

If you’re sure you can handle all those as well as an agent, feel free to sell without enlisting one.

But for many people, working with a real estate agent, broker, or Realtor gives them peace of mind they’re getting the best price on their home from the most qualified buyer.